Gold Price Forecast: XAU/USD clings to gains near weekly top amid weaker US Dollar

• Gold price gains traction for the third successive day and climbs to a fresh weekly high.
• A weaker US Dollar and expectations for a less hawkish Federal Reserve act as a tailwind.
• Looming recession risks weigh on investors’ sentiment and remains supportive of the move. 

Gold price is building on its bounce from the $1,860 area, or a one-month low touched earlier this week and gains traction for the third straight day on Wednesday. The momentum lifts the XAU/USD to a fresh weekly high, around the $1,886 region during the first half of the European session and is sponsored by a combination of factors.

Weaker US Dollar acts as a tailwind for Gold price

The US Dollar (USD) comes under renewed selling pressure and erodes a part of its recent strong gains to a one-month top amid the uncertainty about the Federal Reserve's (Fed) policy outlook. In fact, Fed Chair Jerome Powell on Tuesday acknowledged the need to raise interest rates further due to strength in the labor market and elevated inflation. Furthermore, Minneapolis Fed President Neel Kashkari said the central bank would probably have to raise interest rates to at least 5.4% to tame high inflation.

Powell's less-hawkish stance offers additional support to Gold price

Powell, however, reiterated that the disinflationary process was underway, fueling speculations about an imminent pause in the Fed's policy-tightening cycle. Investors now seem convinced that interest rates may not rise much further, which is evident from a fresh leg down in the US Treasury bond yields. This, in turn, is seen weighing on the Greenback and acting as a tailwind for the US Dollar-denominated Gold price. Apart from this, a generally weaker risk tone further benefits the safe-haven XAU/USD.

Softer risk tone further benefits safe-haven XAU/USD

The market sentiment remains fragile amid worries about economic headwinds stemming from the continuous rise in borrowing costs, the COVID-19 outbreak in China and the protracted Russia-Ukraine war. Apart from this, fears about worsening US-China relations - amid growing tensions over a suspected Chinese surveillance balloon - temper investors' appetite for riskier assets. This, in turn, favours bullish traders and supports prospects for additional near-term gains for Gold price.

There isn't any major market-moving economic data due for release from the US on Wednesday, leaving the USD at the mercy of the US bond yields. Later during the North American session, traders will take cues from speeches by influential Federal Open Market Committee (FOMC) members. This, along with the broader risk sentiment should produce some meaningful trading opportunities around the non-yielding Gold price.

Gold price technical outlook

From a technical perspective, any subsequent move up is likely to confront resistance near the $1,900 round-figure mark. A sustained strength beyond has the potential to lift the Gold price to the $1,920 horizontal barrier, above which a bout of short-covering could push the XAU/USD towards the $1,950 region. This is closely followed by the multi-month peak, around the $1,960 area touched last week.

On the flip side, the one-month low, around the $1,860 region, now seems to protect the immediate downside. The current recovery may even be characterised as a bear flag in mid-formation, with considerable downside potential. It would take a convincing break below the monthly $1,860 low, however, to confirm further downside and make the Gold price vulnerable to accelerate the fall towards the $1,825 horizontal support en route to the $1,800 mark. This is followed by the very important 200-day Simple Moving Average (SMA), currently around the $1,776-$1,775 area. The latter should act as a pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders.

Key levels to watch